Maybe this should be his nickname, henceforth: Jon "Rusty" Corzine. The former Senator and New Jersey governor — not to mention former Goldman Sachs CEO — marched up to Capitol Hill today to explain how his most recent firm, MF Global, was plunged into bankruptcy, taking $1 billion in supposedly protected client funds with it.
MF Global was no Goldman Sachs, and various theories have been offered about how that's a significant difference. Like, Corzine wasn't being dogged by the crack, risk-assessment pros he dealt with at Goldman. He could make bets on European sovereign debt based on his own sense that Europe would solve its financial mess.
But I like Marketplace's Heidi N. Moore's take, which is that Corzine had been out of the Wall Street action for too long. His ambition was to take MF Global, a respectable broker-dealer but hardly a Goldman-level investment bank, and turn it into a junior Goldman. It was a bold move. But maybe he wasn't up to the job.
In fact, he may have inadvertently exposed MF Global to replay of a financial crisis that happened long before the Financial Crisis that we all now know and dread. Effectively, MF Global's head wasn't keep track of what its body was doing. Here's Felix Salmon:
[B]ack-office clearing and settlement operations are largely ignored by senior management most of the time. Still, Corzine was responsible for them. And he testifies that in its final week, “MF Global undertook extraordinary steps” in an attempt “to sell assets and generate liquidity”. It it possible that those extraordinary steps included hands entering cookie jars where they weren’t actually allowed to enter? I’d say it’s not only possible but likely. And that the more “extraordinary” the steps that Corzine was encouraging his lieutenants to take, the more likely that he would have been effectively condoning the idea that customer funds could be used in an attempt to stave off bankruptcy.
Joseph Nocera provides a quick analysis of the so-called "back office" crisis of the 1970s in his book "A Piece of the Action: How the Middle Class Joined the Money Class." It actually created a major fracas at the time and spelled the end for an older, clubbier version of Wall Street, laying the groundwork for upstart, aggressive firms and leading inexorably to...Jon Corzine setting up Goldman Sachs to go public, then getting kicked out of the firm.
But this is kind of weird, and maybe rather telling. Corzine lost out at Goldman, the lost out as New Jersey governor. Let's just assume that he's completely innocent of any wrongdoing at MF Global and that the company's back office was riddled with grifters and thieves who could exploit a chaotic situation. That says perhaps even more about Corzine's decline from Goldman glory as anything else — that he had to cook up a high-risk scheme and find a reputable enough but still second-tier Wall Street operation to take it on.
That was MF Global and in addition its risk desk being weak, its back office wasn't so great, either. Zero Hedge lays out a plausible scenario for what happened as the firm was going down.
I guess the interesting thing here is that Corzine was at one time an impressive individual. After the financial crisis, however, he's just another Wall Street player who has been hauled before Congress. Not even a former U.S. Senator being hauled before Congress! And many, many people in the land figure his mouth is full of nothing but deception.
Perhaps it makes matters worse that rather than being grilled by the House Agriculture Committee, which oversees the commodities business (farmers were actually big MF Global clients) rather than the more imposing Financial Services committee. (If you watched the inquisition on TV, you may have wondered why the committee room looked so...um, small.)
If Corzine does wind up paying fines or going jail, he may seriously question whether trying to revive the Goldman glory days, in the aftermath of Wall Street's fall, was really such a great idea.